Red Company Produces 1000 Units of a Necessary Component with the Following

question 135

Multiple Choice

Red Company produces 1000 units of a necessary component with the following costs: $$\begin{array} { l r } \text { Direct Materials } & \$ 34,000 \\\text { Direct Labor } & 15,000 \\\text { Variable Overhead } & 8,000 \\\text { Fixed Overhead } & 10,000\end{array}$$ None of Red fixed overhead costs can be reduced but another product could be made that would increase profit contribution by $12000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components what is the maximum external price that Red Company would be willing to accept to acquire the 1000 units externally?

• A) $55000
• B) $46000
• C) $79000
• D) $69000

Identify the implications of decentralization and centralization on organizational control.

Understand the principles of responsibility and authority in management.

Understand different types of organizational structures and their characteristics.

Recognize the impact of organizational design on management and operations.

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Definitions:

Shortage

A market condition occurring when the demand for a product or service exceeds the supply available at a specific price.

Equilibrium Level

The state of balance where demand equals supply in a market, resulting in an optimal distribution of resources without excess supply or demand.

Price Ceiling

A maximum legal price above which a product cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price.

Equilibrium Price

The price at which the quantity of a good or service demanded equals the quantity supplied, resulting in market balance.